Tuesday, May 27, 2008

Visa (NYSE:V): 2009-2010 ests raised to new Street high at SunTrust

SunTrust is out with a pretty major call on Visa (NYSE:V) reiterating their Buy rating and raising fiscal 2008, 2009 and 2010 EPS estimates and price target. Firm's target is $100, and new fiscal 2008, 2009 and 2010 EPS estimates are $2.11, $2.96 and $3.82, respectively. These compare with prior 2008, 2009 and 2010 EPS estimates of $2.04, $2.69 and $3.55. These sharply higher estimates reflect firm's confidence in Visa's volume growth, pricing power and operating leverage.

Firm argues that Visa and MasterCard (NYSE:MA) are the premier payments companies in their universe. These companies boast the most compelling franchises and exposure to the strongest global secular growth drivers. As a result, they should continue meaningfully outperforming Street mean revenue and EPS expectations. While they appear richly valued, they believe this is more a function of unrealistically low analyst estimates, rather than intrinsically rich multiples. Firm can support Buy ratings on each as their models make an effort to depict actual earnings power, rather than artificially conservative estimates.

SunTrust's significant fiscal 2009 and 2010 financial projection increases reflect modestly more aggressive volume and transaction growth in fiscal 2009, along with a more bullish view of the company's pricing power.

It is firm's view that most analysts have been unwilling to boost their growth forecasts for Visa as the company gave markedly conservative guidance during the IPO process and did not alter its long-term growth objectives following impressive 2Q08 outperformance. Further, while MasterCard has been public for two years, and has consistently posted organic revenue and earnings growth well ahead of its long-term goals, Visa has only beaten expectations for one quarter.

As a result, they believe analysts' MasterCard estimates are closer to reality than their Visa projections. This has created a situation in which V appears to have a valuation comparable with MA on EBITDA and higher on EPS. They believe the opposite is actually true, however.

Notablecalls: I think this is a pretty major call from SunTrust. I don't know how many of you remember but SunTrust was out on Mastercard on June 15 2007 with a hefty EPS raise (one that pretty much triggered another round of EPS raises by other firms).

Same thing may be happening with Visa here. Note that SunTrust's EPS ests for 2009-2010 are the new Street high.